A Market Peak Is Close But Not Imminent Right Now
The Reserve Bank of India's aggressive dollar sales to defend the rupee are draining liquidity from the banking system
On Episode 718 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Kedia, Director at Kedia Advisory as well as Rahul Mehta, Chief Mentor at CMAI and Managing Director at Creative Garments Pvt. Ltd.
SHOW NOTES
(00:00) Stories of the Day
(01:00) RBI’s aggressive dollar buying is draining liquidity
(03:38) A market peak is close but not imminent right now
(04:03) Major banks, Goldman and Morgan say global markets could correct
(07:59) Gold and silver prices have corrected
(16:16) Why it could take decades to recover the massive AI investments being rolled out
(18:19) How Indian exporters in areas like textiles are coping
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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.
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Good morning, it's Wednesday, the 5th of November, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital, our top stories and themes.
The Reserve Bank's aggressive dollar buying is draining liquidity in the system.
A market peak is close, but it's not imminent right now.
Major banks Goldman and Morgan Stanley say global markets could correct and bet on China and India among other markets for the future.
Gold and silver prices have corrected, will they stabilise and stay at current levels?
Why it could take decades to recover the massive AI investments being rolled out globally?
And how Indian exporters in areas like textiles are responding to tariff pressure?
Markets Will Have To Wait For A Peak
Before we dive in, I do track what CEOs of global finance companies or investment banks are saying and where.
We will come to what they said most recently, but the where is equally important. If I were to look at 2025, most public-facing CEO conversations outside of the United States and Europe, which also includes Davos, have happened in the Middle East, Singapore, and Hong Kong. It is logical to conclude that the Middle East and East Asia is where the new interest continues to be.
Many CEOs do visit India, but usually individually. But rarely is there any large conference or convening of the scale we are seeing in these markets right now. In the Middle East, for example, we've seen the of global finance and business descending on Riyadh, apart from older venues like Dubai and Doha.
And between Singapore and Hong Kong, it's more of Hong Kong, as we've seen just this week. Back home, it does seem that the rupee would be falling more, were it not for the Reserve Bank of India's aggressive intervention, which does suggest that there is considerable pressure, including from foreign portfolio investors who are either investing minimally or still selling. There are, of course, other factors that are pushing the rupee down.
The Reserve Bank of India's aggressive dollar sales to defend the rupee are draining liquidity from the banking system, prompting calls for bond purchases to ease the strain, according to traders who spoke to Reuters. The Reserve Bank of India has scoped to buy about a trillion to trillion and a half rupees, that's about $11 to $17 billion of government bonds, citing a shrinking liquidity surplus, even as it signals policy space to support growth, according to those traders. Predictable and surplus liquidity is important to keep rates low in the economy, which is, facing pressures from U.S. tariffs and slow capital flows.
The Reserve Bank of India last conducted open market operation purchases in May and bought bonds worth about 240,000 crores in the first half, which we referred to here on the core report at that point. And last week, the Central Bank rejected bids for a bond auction, signalling its discomfort with higher yields, according to Reuters. On Tuesday, the rupee closed stronger, thanks to the market intervention by the Reserve Bank of India, which we referred to even as routine dollar bids from importers and foreign banks kept a lid on its gains, according to Reuters, which also added that the rupee closed at Rs.88.65 against the dollar, up 0.1 percent on the day.
Elsewhere, gold prices are also holding steady now, below $4,000 per ounce, around $3,993 to be precise. On Tuesday, spot silver is also down at $47.78, more on gold, silver, and where they're going shortly. Currency and gold prices do reflect the larger global optimism or pessimism, which is useful to benchmark before we look at local prices.
Speaking of that, Indian equity markets saw a sell-off in another choppy day, thanks to fall in information technology and metal stocks. The Sensex closed 519 points lower at 83,459, and the Nifty 50 was down 165 points to 25,597. The broader indices were also down, the Nifty Mid Cap 100 was down 0.4%, and the Nifty Small Cap 100 index was down 0.8%. Could contrast signals be emerging from all of this? Now, there is concern and renewed concern about the markets, that's global markets, being driven by the AI frenzy.
Now, global markets may be due for a reality check after this year's relentless rally, according to both Goldman Sachs and Morgan Stanley, who on Tuesday cautioned investors to brace for a drawdown over the next two years, according to a CNBC report. Equities worldwide, as we know and have been tracking here in the core report, have been hitting record highs this year in many parts of the world, ranging from Wall Street to Japan and Korea, except of course India. A lot of this is because of two alphabets, that's A and I. Goldman Sachs CEO David Solomon, speaking at the Global Financial Investment Summit in Hong Kong, said that it's likely there will be a 10-20% drawdown in equity markets sometime in the next 12-24 months, and he said that things run and then they pull back so people can reassess, according to that CNBC report, which also added him saying that such reversals were a normal feature of long-term bull markets, and that they were advising clients, as always, to stay invested and review portfolio allocation and not attempt to time markets.
Morgan Stanley CEO Ted Pick, speaking on the same panel, said investors should welcome periodic pullbacks, calling them healthy developments rather than signs of crises. He also said that we should welcome the possibility that there would be drawdowns, 10-15% drawdowns, that are not driven by some sort of macro cliff effect, according to that CNBC report. Goldman expects global capital allocators to continue to be interested in China, adding that it remains one of the largest and most important economies in the world.
Morgan Stanley is bullish on Hong Kong, China, Japan, and India. Thanks to their growth stories, Japan's corporate governance reforms and India's infrastructure build-out were singled out as multi-year investment themes, according to that CNBC report. The Morgan Stanley CEO said that it's hard not to be excited about Hong Kong, China, Japan, and India, vastly different narratives, but all part of a global Asia story.
He also highlighted the AI, EV, that's electric vehicles, and biotech sectors in China. So, if this AI frenzy abates a little, markets like India could stand a better chance and in a way would continue to offer the more traditional industries and stocks whose businesses are more understandable and predictable and hitched to an economy with steady growth rather than any drastic moves driven by a frenzy of the like or similar to AI in many parts of the world, notably America.
Auto Profits
Speaking of understandable businesses, automaker Mahindra and Mahindra posted a nearly 18% rise in second quarter profit on Tuesday driven by steady demand for its higher margin sports utility vehicles and tractors as well as strong exports.
Profit after tax rose to about 4520 crore rupees from about 3841 crore rupees last year. Remember, yesterday we spoke about Airtel which also pulled in fairly strong revenues and profits from its operations in India and Africa.
Bad Quarter For Indigo
Meanwhile, budget carrier Indigo which also controls about 64% of India's market reported a net loss of about 2580 crores for its second quarter after financial year 2526 from about 986 crores in the same quarter last year thanks to currency movements. Revenue from operations however increased about 9% to about 18,000 crores in the same quarter last year. Earnings before interest tax depreciation and amortisation were up 85% while the EBITDA margins improved to 18% from about 11% in the corresponding period last year.
Indigo officials said that the year began with significant external challenges across industry but they saw a stabilisation in July and a strong recovery through August and September and they've nudged their capacity guidance for the full financial year 2026 to early teens growth.
Gold and Silver
Gold and silver prices have retreated from their highs.
Even as we try and understand where they could go it's useful to review where they came from and what drove them to these highs which also helps us get some insight into what could or could not happen next. I spoke with Ajay Kedia, commodities expert of Kedia advisory and I began by asking him what had changed given that barely 10 days ago gold prices were rising like there was nothing going to ever stop it.
INTERVIEW TRANSCRIPT
Ajay Kedia: First of all, if we compare month on month, October month was a very fiery month. We can say we have seen gold closer to 4400 level mark and corrected almost 11% from high to low. Similarly, silver has corrected around 18%.
It was in line of expectation because we know whatever the factors up till now is on the verge of maturity. We can say we have seen in the October month ceasefire in Middle East, US-China, US-India trade tariff war or we can say concern has came down. We have seen market has managed to test the level of 100 which used to be around 96.
So, I think things have been now maturing and that is why a profit booking has started in bullion and we may see further more liquidation coming back in next couple of months as year end is near to us and generally portfolio risk suffering comes and definitely gold silver with a humongous gain what we have seen is about to lock in the profit.
Govindraj Ethiraj: Would that therefore suggest that the premium that we have been seeing or the premia that we have been seeing is more linked to geopolitical risk than anything else?
Ajay Kedia: In past 20-30 years, we have always seen there would be either one or two reason for this type of activity like geopolitical tension or recession fear. But this time in last three years, we have seen a number of things like geopolitical tariff concern, central bank cutting down interest rate, dollar index de-rollerization. I think one by one things have been settling down and whatever the premium they used to get is now settling down.
Take example of Middle East that has wiped out. Now, trade tension has come down. Dollar has started recovering.
Interest rate scenario has totally changed from October rate cut to December. We can say a pause could be there. This type of premiums are now liquidating and that is why prices are under pressure.
Govindraj Ethiraj: That also means that basically any upside is now looking difficult from here on or at least on the horizon?
Ajay Kedia: See, generally in last few years, we have seen correction of let's say 10-12% in gold is called as a healthy correction. So right now things have been on the same line only because things has not stopped like as per the latest World Gold Council report 220 tonnes has been bought by central bank still gives strength to gold. But yes, we can say corrections are in front of us as slowly and steadily ETFs are showing some outflow.
So I think we can't say from here market can't go up. If suppose things changes, then definitely it could be supportive. But yes, on the verge of profit booking, maybe a further fall of around 6-8% can be pocketed by this year.
Govindraj Ethiraj: Right. And if you were to look at both gold and silver, and I'm going to come back to in a moment, from an India perspective, obviously our prices track global prices, but how are you seeing and have you seen overall demand and the spillover from the festival season?
Ajay Kedia: See, as per the latest data that has revealed that definitely the value side has been increasing because of gold prices has gone up, but the volume has decreased by 18-20% as India is a price sensitive audience we have. As soon as the prices goes up, the volume or we can say the buying capacity has reduced. Secondly, I think with the high prices, definitely it will impact furthermore.
Govindraj Ethiraj: Okay. Silver has two kinds of demand, which we've discussed earlier as well. So there's industrial demand and there is let's say non-industrial demand.
How are those two trends looking? Because industrial demand continues to be strong, even if other factors are not affecting it.
Ajay Kedia: Industrial demand is not an overnight demand. As we know, clean energy is the basic funda which is driving the silver prices. We used to see this clean energy demand in last couple of years of post-COVID.
Before that 10-20 years, there was no clean energy demand. So I think it will be long lasting. It will take time, but important is the closing because October month has closed below $50 mark.
On a technical count, in 1980, we have seen $50 mark. We have seen 2011 $50 mark and tested and went down. So I think a closer below $50 is a sign of a mature or we can say profit booking.
We may see silver correcting with gold, maybe a support of $45 to $40 also. We can see if nothing happens or nothing new happens, I think a profit booking is due in silver also to the tune of $40. In international, here also another let's say 10-12% correction we can see in silver also.
Govindraj Ethiraj: Right. As you look ahead, at least in the near term, what are the signs that you're seeing both from a positive push as well as a negative push that could happen, which could either move prices up or down?
Ajay Kedia: See frankly, in last couple of years, whatever the factors we have seen still, all these factors are with us like geopolitical tension, Donald Trump. So any new escalation will definitely push the prices upside. But I personally believe that all these factors has already been discounted and on the words of measure.
So I think de-escalation of US-UK war or we can say Donald Trump, there is a vote mandate is going on. So all these factors will continue to be there. But preferred as we head towards the year-end, a profit booking in this asset class is due.
Govindraj Ethiraj: Right. Last question. Is there any correlation you're seeing between gold and silver and overall major metals or are they running separately?
Ajay Kedia: I think the correlation is there because when we talk about gold-silver ratio, it's an economic indicator. Whenever this ratio comes down, that means the concern to the economy is coming down. That is why gold is undervalued as compared to silver.
Recent some international bankers have got a report of gold- silver ratio to come down to the level of 72. That suggests geopolitical tension should come down. So I think with gold-silver ratio currently around 82, we expect this ratio should come down.
That means silver should still outperform on the consumption side, industrial demands.
Govindraj Ethiraj: Ajay, thank you so much for joining me.
Ajay Kedia: Thank you so much.
Banking and Blockchain
Now blockchain is a technology we speak of often on the core report particularly in the context of finance. Standard chartered CEO Bill Winter said on Monday that he foresaw a future in which nearly all global transactions were conducted on a digital blockchain ledger according to CNBC. He too was speaking at the Hong Kong fintech week and he said that our belief which I think is shared by the leadership of Hong Kong is that pretty much all transactions will settle on blockchains eventually and all that money will be digital and he said that think about what that means a complete rewiring of the financial system and he said that experimentation is required to determine what that rewiring looks like.
Standard chartered which lists or rather is listed on both London and Hong Kong has been ramping up its involvement with digital assets in recent years including through digital asset custody services trading platforms and tokenised products according to CNBC which reported this story. Winters made those comments while discussing Hong Kong's role in the global digital asset space crediting the leadership on experimentation and regulation alongside Hong Kong financial secretary Paul Chan. Hong Kong has been working to establish itself says CNBC as a regional crypto hub through a digital asset licencing regime as well as tokenization pilots in which standard chartered is a participant.
A tokenised asset is a digital representation of a real world asset like stocks bonds or commodities that can be recorded and traded on a blockchain or a distributed ledger. Now stable coins which are pegged to a currency are often held up as an early example of a tradable tokenised asset according to CNBC. Larry Fink CEO of Blackrock which is also the world's largest money manager said in April that every asset from stocks to bonds to real estate can be tokenised in what will represent a revolution for investing.
Speaking Of Revolutions
AI jitters are spreading more news from Hong Kong again HSBC CEO Georges Elhedry on Tuesday warned of a mismatch between investments and revenues.
Speaking at the same global financial leaders investment summit in Hong Kong L. Hedry said the scale of investment poses a conundrum for companies while the computing power for AI is essential current revenue profiles may not justify such massive spending CNBC quoted him saying Morgan Stanley in July estimated according to that same report that over the next five years global data centre capacity would grow six times with data centres and their hardware alone costing about three trillion dollars in three years time. An April report by McKinsey said that by 2030 or in five years time data centres equipped to handle AI processing loads would require about five trillion dollars in capital expenditure to keep up with compute demand while the CAPEX for those powering traditional IT applications is forecasted to be about one and a half trillion dollars. L. Hedry said that consumers were not ready to pay for this and businesses would have to be cautious as productivity benefits will not materialise in a year or two.
He said these are like five-year trends and therefore the ramp up means we will start seeing real revenue benefits and real readiness to pay for it probably later than the expectations of investors. General Atlantic chairman and CEO William Ford said in the same panel and reported by CNBC that in the long term you're going to create a whole new set of industries and applications and there will be a productivity payoff but that's a 10 to 20 year play. Ford also said that while the expenditure shows the long-term impact recognition of AI there could also be misallocation of capital destruction or valuation and irrational exuberance in the initial stages and it's also difficult to pick winners and losers at the moment.
Comparing it with railroads and electricity he says you're really betting on this being a broad-based technology like railroads or electricity that had profound impact over time and reshaped economies but were very hard to predict exactly how in the first few years.
From AI to Textiles
India shipments to the United States, its largest export market dropped from 8.8 billion dollars in May to five and a half billion dollars in September according to a report from the global trade research initiative last week. Now India's exports to the US have now therefore fallen about 37 percent thanks to those 50 percent peak tariffs.
So the GTRI study looked at trade performance over the last five months starting April 2nd 2025. According to GTRI the US duty started at 10 percent in April rose to 25 percent by early August and peaked at 50 percent by the end of August affecting a range of Indian exports and exporters. Labour-intensive industries such as textiles, gems and jewellery chemicals, agri-foods and machinery which represent about 60 percent of India's exports to the US saw a 33 percent drop from 4.8 billion to 3.2 billion dollars and gems and jewellery saw the steepest fall.
Sticking to textiles I reached out to Rahul Mehta chief mentor at the Clothing Manufacturers Association of India or CMAI and I began by asking him how exporters were managing in these difficult times.
INTERVIEW TRANSCRIPT
Rahul Mehta: To some extent, I mean, you need to understand two things. Number one, there was a lot of front-loading in the month of July and August, where most of the buyers requested the suppliers and the suppliers tried to ship out their orders before the September deadline. So, the figures could be a little misleading.
That's number one. Number two, again, orders in the, particularly the apparel industry, they tend to be placed between four to five months in advance. And therefore, there was every possibility that although the tariffs were in place during the month of September, the orders were placed earlier and therefore, both the buyers and the suppliers had an opportunity to try and adjust their buying prices or their selling prices.
So, actually speaking, if you notice the figures for apparel, the month of August showed a decline of 8% and the month of September, it has shown a decline of 10%. But in my view, this is just the tip of the iceberg. In these months, most of the suppliers have sort of swollen the, you know, bitter pill and supplied the goods at whatever prices they could negotiate with their buyers, because in any case, it would be a far better situation than to keep the inventory with them because that would have virtually no value.
Therefore, I think the figures as of now are not giving the true indication and you will see October to December a far greater fall than what has been seen so far. I personally believe that Indian apparel exports cannot survive with a 50% tariff, it's just not possible. And we are not even talking about whether the American consumer will be willing to pay that kind of price.
So, whether their exports or rather their imports itself will come down or not is a major question mark to which we have not really got an answer as yet. Because even the American market has not yet seen the full impact of the goods. I'm seeing a very bleak future for the industry if the tariffs continue.
Govindraj Ethiraj: Right. I'm going to come to a question on US versus other markets. But before that, you talked about five to six months.
So, essentially, would manufacturers and producers be preparing in normal times for a summer shipments or for summer shipments at this time? Yes. Right.
And those are the deals which are obviously going to take a hit is what you're saying? Absolutely. Right.
While we've seen a fall in exports to the US to some extent now and you're predicting that it will be more in coming months, how are other markets looking in this period?
Rahul Mehta: First of all, it's not very simple to switch markets overnight. It takes a long time for the supplier, the exporter to try and locate the right kind of buyers which they would want to deal with, who would want to buy the kind of goods that they are manufacturing. So, it's not going to be very easy.
Also, the European or the South American buyer is also going to be looking at the Indian exporters in a very close manner because they know that the exporter has come to them because of the US market. So, they are also going to take full advantage of the situation. So, it's going to be a slow process.
It's going to be a painful process. But I personally have been advising the exporters to start looking at diversification of their markets in any case, regardless of the American tariffs. I think that has only sort of hastened the move to other markets.
Having said that, one has to understand that there is no other market which comes even close to the US market in terms of its potential. EU as a whole is probably more or less the same as the American market. But when you say EU, it really is 8 or 10 or 12 countries.
So, it's not one alternative market. It's a basket of markets.
Govindraj Ethiraj: Right. And you have about 20,000 members in the CMI. Now, sort of two split questions on that.
One is, some of them are obviously large and rather many of them are large companies. They've also had and will have manufacturing locations outside of India, which gives them some flexibility to manage this. And there are others who are not.
So, how are both these segments doing?
Rahul Mehta: I'm talking about exporters as a whole, not necessarily CMI members because CMI members are focused more on the domestic market. Although we do have exporters as our members and all the leading exporters like Shahi Exports, Gokaldas, Matrix Organisation, all these people are our members. But our focus is more on the domestic market.
Having said that, to answer your question, the companies who have manufacturing facilities outside India are in fact today very well placed. In fact, without naming the exporter, I'm on the board of a company which has manufacturing facilities in four countries outside India. And our company is sort of going bonkers with the kind of orders that are being placed on us because not only are we trying to shift our own Indian orders to Bangladesh or Vietnam or Indonesian arms, but our buyers are now approaching us that look, would you mind taking on these additional quantities or would you mind taking all these additional orders?
So, these companies which have facilities outside India, I think are extremely well placed. The worst hit, I think, are the MSMEs who are typically dealing with only one country or maybe two or three customers. These are the people who are going to find it very, very difficult to switch their production outside India to outsource it and to try and tap countries other than US.
There is also a small segment of the industry, just for your information, who are basically merchants. They don't have their own manufacturing facilities. They outsource the production.
These people are also doing reasonably well because again, all they have to do is to shift their orders from their Indian manufacturing units to the Bangladesh or the Vietnam or the Indonesian units. So, these people are also not so badly affected. It's the manufacturer exporters like those in Tirupur, for example, they are going to be very badly hit.
They survive on their own manufacturing units and they are going to be hit badly.
Govindraj Ethiraj: So, if you were to take one manufacturing plant, mid-size to small size, which is because they are the majority, as an illustration, what would happen in a situation like this? So, would we see, let's say, capacity utilisation down to 50% in terms of machines and people or even more or how could it play out?
Rahul Mehta: They would definitely feel that the capacities and subsequently the jobs will be hit by a minimum of 35 to 50% because that's what typically the American buyers would constitute of their business. I can also foresee some exporters running into severe financial crisis and therefore shutting down. It has happened in the past.
It's not the first time it has happened. I see that this is also going to happen now. The good part of this whole current scenario is that the American government, without mentioning names, is so volatile in its thinking and decision making that decisions which are made in the morning are being changed in the evening.
So, you never know. I personally believe that just like the Americans have now appeared to have struck a fairly good deal with China and the angst against China and Chinese imports seems to have come down. I am hoping that a similar situation will evolve with India also.
I personally don't see this lasting more than December.
Govindraj Ethiraj: On that hopeful note, Rahul, thank you so much for joining me.
Rahul Mehta: Thank you for having me.
Kimberly Clark to buy Kenvue
Kimberly Clark, known in India for brands like Huggies, Cortex, Kleenex and Scott said on Monday it was buying Kenvue in a deal valued at close to 49 billion dollars that would create a consumer staples giant according to a report on CNBC.
The combined company would bring together brands like Huggies and Kleenex with the likes of Band-Aid and Tylenol. It would include 10 billion dollar brands the company said in a formal release and the acquisition would be one of the largest on Wall Street this year and is expected to close in the second half of 2026. Kenvue is actually a
